Materials

CSR pushed higher on 20% profit jump

Wed 11 May 22, 1:14pm (AEST)
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Key Points

  • Net profit after tax (before significant items) of $193m for the year ended March 31, was up 20%
  • Aluminium earnings nearly doubled to $40m on higher prices
  • FY dividend 31.5cps lower than its 36.5c in FY21

CSR’s (ASX: CSR) share price was up 1.85% heading into lunch today following revelations that the building product giant’s net profit after tax (before significant items) of $193m for the year ended March 31, was up 20% on the previous year, due to strong housing activity.

Reflecting strong detached housing activity driving higher volumes, improved factory performance, operational execution and continued cost discipline across all businesses, the group’s largest business, building products, posted record earnings of $228m, up 24%.

While property earnings were down to $47m, from $54m, aluminium earnings nearly doubled to $40m on higher prices, which were partially offset by production costs.

Management notes strong execution – following organisational changes made streamlining the business over the last 18 months - within a highly disrupted market meant all of CSR’s businesses performed well during the year.

Highlights for the full year included:

  • Trading revenue of $2.3bn was up 9%

  • Earnings up 22% on the prior year to $291m

  • Statutory net profit is $271m, compared to $146m in the previous financial year (including $86m in carry-forward capital tax losses)

  • Final fully franked dividend of 18cps, which brings FY dividend to 31.5cps lower than its 36.5c in FY21

  • Property valuation update of $1.1bn, up 20% on the previous year

  • Finished the year with $178m in net cash

  • Earnings per share (EPS) of 39.7 cents

What’s in store

CEO Julie Coates expects earnings for the property segment in FY23 to be about $52m and provided an indicative earnings range of $33m to $49m for the group’s aluminium arm.

Building Products, notes Coates is well positioned to continue to grow, and in YEM23, expects the business to return to more normal levels of investment to support the delivery of its strategy.

Coates expects group earnings to be supported by contracted transactions in its property segment over the next three years and an increased hedge position in aluminium division which extends to 2027.

“Investing in our Property assets and our development capability is also a core part of our results with contracted sales secured for all stages at Horsley Park to deliver $408 million in proceeds over six years,” said Coates.”

“Remediation work is also progressing on the 196-hectare site at Badgerys Creek adjacent to the new Western Sydney Airport.”

Strong pipeline

Management expects the strong pipeline of detached housing projects to continue in the year ahead as completion times lengthen with supply chain and trade capacity impacting the broader industry.

Meantime, while management guided to continued supply-chain challenges in its building products division, multi-residential and non-residential businesses are expected to improve.

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CSR share price movement.

What brokers think

Consensus on CRS is Strong Buy.

Based on Morningstar’s value of $5.85, the stock appears to be fairly valued.

Based on the brokers that cover CSR (as reported on by FN Arena) the stock is currently trading with 14.1% upside to the target price of $6.59.

Early February, Credit Suisse upgraded CSR to Outperform from Neutral after reviewing the Australian Building Materials Industry. The broker notes building approvals are holding up despite zero migration. Target price steady at $6.70.

Commenting on today’s result, Citi notes building product sales rose just 5%, despite building starts growing 44%. However, with completions only rising 6%, the broker expects this will translate into a strong pipeline for FY23. Buy rating and $6.63 target price retained.

While Ord Minnett envisages working capital and coke cost headwinds, the broker retains a Buy rating and $6.63 target price.

The company is currently trading a price-to-earnings (P/E) ratio of 11.3 times.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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